What Would We Do Without Credit?

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What Would We Do Without Credit?

I've been doing what I can to raise awareness about some of the important issues that the crash course highlights. (I'm an American living in Poland. I mostly teach business English to adult business people in Warsaw.) When I'm discussing some of the new things I've learned about economics, I often mention precious metals. Being very new to the gold market, I'm often surprised at the kind of spontaneous and sometimes harsh criticism that I encounter when I tell people that I bought some gold several months ago and explain that fiat currency will continue to decline in it's purchasing power.

The discussion seems to follow a familiar course from this point forward. The students begin telling me that you need money to live, that gold is no different from paper money and gold only has value because people believe it does etc. etc. Then we get to that all too familiar place in which they begin to argue that all of the huge gains in standard of living that we now enjoy are a direct result of bank credit.

Their Logic

Without bank, loans entrepreneurs would not have enough capital to start new businesses as easily. Super easy credit has funded all sorts of great start ups that make our lives easier.

One of my students mentioned that her husband's company here in Poland started out with 5 employees, and now thanks to bank loans, the company has grown to 100. (She's a private student who pays me quite well by the way.)

I found it very hard to counter these arguments. I mentioned that all of the advances that we've experienced have been a result of the huge ERoEI gains we've gotten by switching from coal to oil and how all of the advances we've experienced are simply a reflection of all of the surplus energy we now have.

After all of the reading and thinking that I've done, I believe that the inherent flaw of our current fiat money system can be expressed mathematically as follows:

P =/= P + I

P = Principal     I = Interest

This would lead me to believe that any system which allows interest bearing debt to exist is doomed to failure. (This would include a gold standard).

The problem then, is how would we fund new ventures without bank credit? Who would want to lend money to anyone to start a business without the promise of a return? 

I guess all of the funding could come in the form of an equity investment.

Something tells me that things would be a lot cheaper if banks didn't own 95% of the world's money and we didn't have so much of it floating around. 

I remember Chris mentioning a while ago that he wanted to move in a new direction soon and begin talking about solutions to some of the problems that we face. This is one of the biggest problems that I can think of. Without Credit how could we fund new businesses?

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Re: What Would We Do Without Credit?

I think credit and money should be separate issues.  Money should be finite, but it could still be loaned at interest to others.  the problem is that currently money is credit and is infinately available from thin air from bankers.

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Re: What Would We Do Without Credit?
docmims wrote:

I think credit and money should be separate issues.  Money should be finite, but it could still be loaned at interest to others.  the problem is that currently money is credit and is infinately available from thin air from bankers.

If 'I' is any amount greater than 0, the following holds true:

P =/= P + I

In the current system the banks create money to pay interest by creating new principal. The problem is that the new principal being created always has interest attached to it. This is like trying to fix a leaky bucket by drilling a new hole in it and then pouring more water in. Each time you pour more water in you create a new hole and you have to pour more and more water in faster and faster until you reach that point when the water just goes right through the bottom of the bucket and you have to start over again with a new leaky bucket (it's leaky because it's an unbalanced equation).

With a fixed money supply it's impossible to create future interest payments and people would therefore begin defaulting on their loans right away. Let's imagine there is a guy charging interest right when the new system begins. He cleverly positions his little bucket under the the gigantic pool of the money supply (let's call him Jeff). He's catching the drip from the pool in his bucket, but remember, we can't add more water to the pool with a fixed money supply. Any money added back into the greater pool comes from Jeff in the form of an interest bearing loan. In the beginning, people would praise Jeff for providign a valuable service to the community, but in reallity, he'd just be making the little hole in the side of the pool bigger and collecting water faster. Eventually he'd own all the water that used to be in the pool. The amount of time it would take him to get all the water would be a function of the size of the pool (principal) and the size of the leak (interest) in it.

Sorry, but you can't seperate credit from money when money is credit. The equation cannot be balanced unless 'I' is zero.

P = P

P =/= P + I

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Re: What Would We Do Without Credit?
okubow wrote:

Sorry, but you can't seperate credit from money when money is credit. The equation cannot be balanced unless 'I' is zero.

Unless you have another force sucking up that interest and negating its value. I'm sorry I cannot link to it as I do not have access to YouTube where I am but if you haven't seen it you should look up the video Money As Debt II  by Paul Grignon (The first one was pretty good too but only covers the basics). The exact topic you're talking about is explored in Money As Debt II and a solution is presented to deal with this problem of interest.

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Re: What Would We Do Without Credit?

okubow,

now that company instead of 5, has 100 employees. But are we sure that is a good thing? Is this company better now, more useful? And when all the similar companies will go from 5 to 100? Will all of them be useful and productive? And who is benefiting from it? The 95 new employees? What were they doing before? Aren't we just moving people, resources and capacity from here to there? Maybe our lives are not becoming eaiser, but more complex. And what is progress? That all of us are working more and more, doing and needing more and more things? "Thanks" to all of the easy credit, we are simply sucking up faster the resources of this planet. I'ts not only about the P/I formula, is also about what is better: to work a lot and have many things, or to be free, don't work to much and don't have all the things? I think we actually don't need all the things that the additional 95 employees are doing in that company.

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Re: What Would We Do Without Credit?

okubow wrote:

After all of the reading and thinking that I've done, I believe that the inherent flaw of our current fiat money system can be expressed mathematically as follows:

P =/= P + I

P = Principal     I = Interest

This would lead me to believe that any system which allows interest bearing debt to exist is doomed to failure. (This would include a gold standard).

The problem then, is how would we fund new ventures without bank credit? Who would want to lend money to anyone to start a business without the promise of a return?

Hello okubow,

You are absolutely correct on this.  If you take your calculation one step further, we can predict the percentage of failed loans by: (Note: P = Principal and I = Interest collected through the life of the loan)

* The percentage of successful loans = P/(P+I)

* The percentage of failed loans = I/(P+I)

So, if $100 million were borrowed (P = $100 million) and $10 million in interest was charged (I = $10 million), then we may calculate that 91% can be paid back and 9% will fail.

I posted more on this subject at: Austrian & Keynesian Theories Vs. Mathematical Facts

Larry

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Re: What Would We Do Without Credit?

 

To me banks should not charge usury at all.  They use fractional reserve banking, so basically they loan out money they don't have and charge interest.  That is a true crime.  I keep asking my credit card company if I can use fractional reserve banking to pay off my debts, they said that is illegal sir.  "I agree" I said. 

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Re: What Would We Do Without Credit?
JK121 wrote:

 

To me banks should not charge usury at all.  They use fractional reserve banking, so basically they loan out money they don't have and charge interest.  That is a true crime.  I keep asking my credit card company if I can use fractional reserve banking to pay off my debts, they said that is illegal sir.  "I agree" I said. 

I had a similar discussion with my mortgage lender (it's around these boards somewhere), it appears that the rules of the individual are not the same as the corporation. Which is weird since they are both legal entities. Of course legalities are always levied on the individual and somehow rarely on the corporation.

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Re: What Would We Do Without Credit?

To me banks should not charge usury at all.

And the only way these banks are going to stop doing that is when we decide to put so much pressure on either the courts or the legislators to stop them.....the courts are probably a waste of time.

They use fractional reserve banking, so basically they loan out money they don't have and charge interest.  That is a true crime.

 

++++++++++++++++++++++++++++++++++++++++++++++++++++ At least someone sees it that way.  Then the worst part is that they never actually loan you anything, then they demand back more than what was created (numbers) and when you can't pay back more than is available, they foreclose on you and when they get the real property the banks cry that they took a huge loss.  I wish my losses where so severe that I ended up owning all of america.  Not really, but what a sick system we are allowing to continue to happen in America.

Does anyone here care about the next generation and what we are passing onto them unless we make a stand right now, and put an end to this debt money system of theft by deception?

 

 

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Re: What Would We Do Without Credit?

Okay, it seems like pretty much everyone who has commented on this post sees a need for monetary reform, but the question is, what do we reform to? We know the current equation is unbalanced P =/= (P + I) , but what could we put forward in its stead? Where would entrepreneurs get money to expand their businesses or start new ones? Extra points for formulas and mathematical models.

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Re: What Would We Do Without Credit?

The collective savings of a nation funds development and innovation.  In order to do that efficiently, the saved capital has to get to where it is needed, usually by loans from multiple people.  Some form of credit is necessary to stimulate commerce; that much has been known since the 16th century. 

People are not going to put their own money at risk for no return, and so some form of interest is also necessary.

The problem with any financial system (including one on the gold standard) where interest is charged is that eventually a very small number of persons will end up in possession of almost all the wealth.  If an interest-bearing system is allowed to run long enough then this is the inevitable result. 

In 1879 Henry George wrote a treatise on political economy, "Progress and Poverty," where he considered the problem of interest always resulting in the accumulation of all wealth into fewer and fewer hands.  That effect was beginning to be seen in America at that time, as the endless supply of free and un-owned land, which had theretofore prevented this process from becoming apparent, was beginning to dry up.  

Henry George concluded that in order to prevent this destructive wealth accumulation from happening only 2 things could be done: (a) eliminate interest payment, or (b) establish a graduated income tax (which was at that time considered a "socialist" solution by definition, but completely unworkable in any case).  He ended up recommending the elimination of interest payments, but never was able to suggest a solution to the problems that the elimination of interest raised.

The ancient Hebrews and Christians were evidently aware of this problem and the crude solution that they developed was to declare periodic jubilees.  This addresses the root problem: inevitable accumulation of the majority of wealth into the hands of a few as a mathematical result of an interest-paying system.

Thus we are left with the following conclusions:

(a) credit in some form is desirable if one wishes to avoid complete economic stagnation and a vastly lowered standard of living than would otherwise be possible,

(b)  interest is necessary if there is to be any motivation for the provision of credit

(c) in a free market where interest is charged the eventual, mathematically certain result is that a smaller and smaller portion of the population will own a larger and larger share of the wealth over time.  This process must be counteracted by some mechanism - the ancients used periodic jubilees; the communists eliminated all loans, and we use the semi-socialist solution of a progressive income tax (which has the fortuitous side-effect of providing funding for the government's ill-conceived adventures).  But is there a better way?

So, the real question is this:  if we are going to allow interest to be charged on private loans, what is a better way to prevent the otherwise inevitable accumulation of most land and wealth into a very few hands? 

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Re: What Would We Do Without Credit?

"mathematically certain result is that a smaller and smaller portion of the population will own a larger and larger share of the wealth over time" 

 

So we can conclude that monetary economics will no longer be a workable point of view for society.  

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Re: What Would We Do Without Credit?

So we can conclude that monetary economics will no longer be a workable point of view for society

You got it.

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Re: What Would We Do Without Credit?

I have never seriously considered the possibility that a society could function without money.  If you don't mind elaborating, I would like to hear more about your views.

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Re: What Would We Do Without Credit?

okubow wrote:

Okay, it seems like pretty much everyone who has commented on this post sees a need for monetary reform, but the question is, what do we reform to? We know the current equation is unbalanced P =/= (P + I) , but what could we put forward in its stead?

First, the private Federal Reserve must be fired if we are to have any hope of monetary reform.  Our current system is a massive scam, a Ponzi scheme designed to transfer wealth from the middle class to the top 1%.  It steals from the real economy.

Here is my 5 point plan for monetary reform:

  1. All new money created solely by the government - the banks must lose their monopoly to create our money.  The money could be created without any debt or interest to the government.  This would eliminate the national debt.
  2. Debt free money could be spent into circulation - a great example of this is the Minnesota Transportation Act.  We are very fortunate to have the architects and promoters of this bill visit this forum often (Byron Dale & Thomas Hedin).  Basically, the bill proposes that approved transportation projects be monetized by wealth (productivity) instead of debt.  State chartered banks would provide the money free from debt and they would be profitably compensated by transaction and service fees.

    The genius of this plan is that it helps mitigate the existing P =/= (P + I) imbalance while decentralizing Washington and Wall Streets control and usury.

  3. Interest free money could be loaned into circulation - targeted programs could be funded without any interest charges.  For example, we could reduce the energy used by building and homes by 50% and the emissions by 75% by upgrading building envelopes and mechanical systems.  For more details of the plan, check this link.

    The P =/= (P + I) equation is balanced since I = 0.

  4. Interest free and partially debt free money could be loaned into circulation - similar to bullet 3 above but with only half of the principal being repaid.  This would essentially be a co-op program between the government and the people.  I would use this money to implement a new national program to get off the electrical grid.

    Most of our electrical grid was never designed to handle the current loads.  Upgrading our grid will be an astronomical expense and it adds an unnecessary parasitic load; transmission and distribution losses account for 6-8% of the generated power.  Instead, we should remove as much load as possible from the grid and generate power on site through existing clean technologies.

    The P =/= (P + I) equation is balanced with money left to mitigate part of the existing imbalance.

  5. Private banks would borrow or receive all new money from the Treasury - banks, like other businesses would incur costs in creating their product.  This would create a revenue stream for the government that could eliminate all income and employment taxes.
    • Banks could borrow new money from the Treasury at a nominal rate (maybe 1%) and mark it up with a higher percentage.  This approach may be easier to implement since it is close to our current model but it would create an imbalance of the P =/= (P + I) equation.  The imbalance could be mitigated by bullets number 2 & 3.
    • Banks could receive new money from the Treasury with transaction fees applied instead of interest.  And, banks could also be compensated by transaction fees and services.  The P =/= (P + I) equation is balanced but this would be more difficult to implement as it requires more change culturally and mechanically. 

In each of the above bullet items, all new money is endowed with value and backing in the form of collateral and productivity.  This is basically what happens now but the major difference is that instead of monetizing debt, we are monetizing wealth (the lone exception is bullet 5, first approach).  And, these solutions would eliminate any need for a national debt.

If we rely on private banks to issue and control our money, as we do now, we are giving up half of our sovereignty.  We are a client state to the private banking system and that must stop.

Larry

 

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Re: What Would We Do Without Credit?

I have never seriously considered the possibility that a society could function without money.  If you don't mind elaborating, I would like to hear more about your views.

In the last depression 90 plus % of the people were rural.  Today the majority of the people live in cities.

 

The last depression had 7-10 million people starve to death so I've heard.

 

I don't want to live through a depression with a population of 305 million mostly urban.  I can't predict the future but I'm guessing it would be our worst nightmate.

 

Demand passage of the MTA NOW!

 

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Re: What Would We Do Without Credit?

Of course the answer would be the Minnesota Transportation Act.  The answer to all of our ills. 

Laying aside for the moment the fact that the MTA is merely a mechanism to create unrestrained inflation by spending an unlimited amount of money on transportation projects, and laying aside the fact that the MTA would allow a state governor to pay every unemployed person an infinite amount of money by hiring them to repaint the lines on every roadway twice per week, this does not address the question raised by this thread.

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Re: What Would We Do Without Credit?

 

Money is and has always been a nothing thing.  It's creates competition, which leads to inequalities in society, misuse of resources for the sake of profit, the paralysis of technology, and withholds collective collaboration on a massive scale.

Face the facts folks, All money systems will eventually lead to a Failed established system.  The U.S. is the wealthiest country, but still we have the biggest gap between rich and the poor, we also have more people in prison then any other country.  

This system must go and it is a complete FAILURE!!  Everyone on here tries to come up with some way to keep the "Money" system going, but if that is all we are doing is trying to solve future problems with "old systems" (money), sorry to say it will not work.  It will be more Patch Work for a decade or so, but will lead to another Failure.  

Forget your Equations

Forget your Politicans

Forget your "false" democracy

Forget your Bill of Rights

It has Failed, for our system has built in Corruption.  Have a Great DayLaughing

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Re: What Would We Do Without Credit?
okubow wrote:

Okay, it seems like pretty much everyone who has commented on this post sees a need for monetary reform, but the question is, what do we reform to? We know the current equation is unbalanced P =/= (P + I) , but what could we put forward in its stead? Where would entrepreneurs get money to expand their businesses or start new ones? Extra points for formulas and mathematical models.

Last year, I started a thread called "what if?"

As far as I'm concerned, it still stands, and so to re-iterate what I wrote then:

Anyone who reads my posts will know me as a lateral thinker...  stuff like 'cancel the debts' etc.  I like to question everything, because surely, there must be a reason....  like why do we work?

Why indeed do any of us go to work everyday?  Some must like their jobs. Surely the great majority of doctors like helping people, saving lives.... some like Medecins Sans Frontieres even do it for nothing (don't they?)

So why do we do it?

I believe we do it to put food (and drink) on the table, raise a roof over our heads to keep the cold and rain away, and pay our debts...  Oh and consume too I suppose.  Money as a means of exchanging disparately valued goods is often discussed here..  but what if we all worked for FREE?  I do lots of work for free.  Two community newsletters a month, the odd newspaper article, repairs to neighbours' mowers, give away eggs and stuff....  but now think about this...

IF debt were to be cancelled, that alone would be one reason to cut right back how much each of us would have to work.  Remove taxes, and there goes another day we don't need to work...  In fact, under such circumstances, it might be possible to work for free.  STUFF THE ECONOMY!  Close the banks, and Wall Street, and.....

Imagine this.  YOU are a gas pump attendant, or mechanic at a service station.  All day you work for free.  Gas is free too.  You come out of work, walk to the nearest bottle shop and get a cold six pack of beer, for free....  the people who make the beer, they work for free too, because they know they can just walk into a supermarket and grab all the food they need, for free.  The farmer works for free, he's out of debt there are no taxes, he gives away his food, which he can afford to do now diesel's free, no taxes, and when he gets home the fridge and TV will work, because he no longer has to worry about paying his power bill, the power's free too.... 

Debts and taxes are only with us to keep the super rich... well, super rich.  No?  Am I missing something?

In a sustainable world, we wouldn't need to raise taxes to build roads...  people who like building roads would do it for free...  in exchange for what they need being free too.

To be sure, some people would abuse the system, or try to...  but HOW MUCH beer can you drink if you walk out with a truckload of the stuff in the back of the SUV?

If stuff was free, crime would grind to a halt too.  Now I'm not saying I've thought this through completely, far from it, but I can't help thinking it's an interesting proposition considering what we are facing today, and that there are so many people here expressing much anger about the looting and pillaging of America.... and ecen talking revolution sometimes.  So, here's a calm revolution.  A new world order, the Matrix disassembled.  Just think f all the great stuff you could do instead of working...

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Re: What Would We Do Without Credit?
jrf29 wrote:

Of course the answer would be the Minnesota Transportation Act.  The answer to all of our ills. 

Laying aside for the moment the fact that the MTA is merely a mechanism to create unrestrained inflation by spending an unlimited amount of money on transportation projects, and laying aside the fact that the MTA would allow a state governor to pay every unemployed person an infinite amount of money by hiring them to repaint the lines on every roadway twice per week, this does not address the question raised by this thread.

Thank you!  My sentiments exactly!

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Re: What Would We Do Without Credit?

This whole conversation makes me want to open a Pawn Shop, LOL.

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Re: What Would We Do Without Credit?

jrf29 and goes211, here is an article that will maybe help explain your worries about the "inflation".

I understand that goes211 does not feel that debt is a problem but if that is true then shouldn't we be able to inflate the debt continuously without any consequences?

 

 

A Close Look at The Theory of Inflation

By Byron Dale

 

Webster’s New World College Dictionary states: Inflation – (a) an increase in the amount of money and credit in relation to the supply of goods and services.  (b) an increase in the general price level,  resulting from this, specif., an excessive or persistent increase, causing a decline in purchasing power.

 

Let’s assume for the moment that Webster’s definition is correct.  If it is we need to address the issue of how and on what basis did the amount of money and credit increase without there being an increase in the goods and services.  This increase in money and credit could not arise due to the need to pay for any existing goods or due to the need for more money or credit to purchase any increase in goods or services.  

Black’s Law Dictionary defines Credit as “Time allowed to the buy of goods by the seller, in which to make payment for them.” –“The right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment.  

According to this definition there would need to be an increase in the amount of goods and services coupled with a shortage of money needed to obtain those good or services before there would be any need for credit at all.  All most every one has the lawful authority to create goods or provide a service.  At this time only banks have the lawful authority to create money.  As a general rule the goods are created and the services rendered before payment is made for the goods and services.  

Therefore an increase in money needed only to gain a profit off of money in and of itself, without any ties to an increase in goods, is the only reason and the only way money could be created without there being an increase in goods or services.   

The only way an increase in the money supply would increase prices would be if almost every thing was bought and sold at auctions where the price is determined by the bidding process.  Personal observation and experience has shown me that ever few buyers offer to pay more than the seller’s asking price. 

This fact in proven by the fact that so many things are now sold with the words on sale preceding the asking price, leading the buyers to believe they are buying the goods at less than the regular selling price.  The fact that there is a shortage of money to buy all the goods that are for sale is proven by the fact that there is so many ads promising no money down and no interest for a certain length of time if one will only buy the goods right now.   

Many writers use the example of the king taking the metal money he acquires through taxes and other means, then re-coining and debasing it by substituting less valuable metal for the more valuable metal.  Therefore, the king is able to issue more coins with the same amount of the more valuable metals, thus inflating the money supply, resulting in increased prices.  This only proves the king believed that he had a shortage of money. 

There could only be truth to this line of thought if anyone was used to dealing in metal money where it would be possible to recognize that the new coins did not have the same metal composition as the old coins.  The seller upon realizing that he was not receiving as much of the more valuable metal as he was expecting for his goods or services clearly might rise his prices to obtain the same amount of the more valuable metal as he was expecting.

Those facts are no longer in play today.  We do not use metal money, if fact we don’t even use paper money.  We only use bank generated numbers as our money.  Everyone I know when given the amount of bank generated numbers that he was expecting is happy with his deal.  No one can tell the difference in numbers like they can with metals. 

Not one person in ten million truly understands how our money system works, the principle under which it functions and how it gets into circulation so the people can use it, and even fewer care.  I doubt if one man in two million has any idea what the money supply is or whether it has increased or decreased, so why would people rise or lower there prices due to an increase or a decrease in the money supply when they didn’t even know that there had been one.

If we were using gold as money it is possible and in fact likely that in the area of a gold rush there could be a temporality rise in prices on the goods the gold miners needed.  That rise in prices of goods would only last till people found out it is easier to get the gold by supplying the miners with more goods then it was trying to find more gold or when most of the new gold was mined out, harder to find or already owned by a few.    

 

Webster’s Dictionary also states:  Inflationary spiral - a continuous and accelerating rise in the prices of goods and services, primarily due to the interaction of increases in wages and costs.

A continuous and accelerating rise in the price of goods and services is clearing what we are experiencing.  The question is why do costs keep increasing?  To answer that question we have to truly understand how our money gets into circulation.  Today all money goes into circulation as interest-bearing loans.  When money is created as interest bearing debt, the debt owed goes up and the interest on that debt always drives up the cost of doing business.  When governments borrow their interest cost increases follow by an increase in taxes.  Interest always increases the cost of doing business.  Interest also causes the debt increase but it does not increase the money supply nor does it increase goods or services.  Interest on debt also increases the need for an increase in the money supply to pay added cost of the interest or someone must suffer a loss of money.  Add to this when the principal of a loan is repaid the money is extinguished causing a decrease in the money supply until someone borrows more money.  When money is loaned into circulation at interest, interest is the only cost that can’t be eliminated without stopping the increase in the money supply. 

There are only three increases in the cost of doing business that courts will force you to pay, interest, taxes and rent.  When one suffers from a rise in interest, taxes or rent they must raise their prices or cut your living standard.  When your standard of living starts to suffer most people try to get an increase in wages.

Add greed and growing governmental regulations to interest and taxes and you have the true cause of price inflation.  Do you really think that the price of gasoline went up to over $4 a gallon because there was a sudden increase in the money supply?  If is clear that when the cost of gasoline went up over $4 a gallon the price of everything that was shipped had to go up or someone’s profit had to go down.  The continuous increase in the nation’s interest bearing debt is the cause of our continuous and accelerating rise in prices.

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Re: What Would We Do Without Credit?
jrf29 wrote:

Of course the answer would be the Minnesota Transportation Act.  The answer to all of our ills. 

Laying aside for the moment the fact that the MTA is merely a mechanism to create unrestrained inflation by spending an unlimited amount of money on transportation projects, and laying aside the fact that the MTA would allow a state governor to pay every unemployed person an infinite amount of money by hiring them to repaint the lines on every roadway twice per week, this does not address the question raised by this thread.

I'll break my response in two counterpoints

...and laying aside the fact that the MTA would allow a state governor to pay every unemployed person an infinite amount of money by hiring them to repaint the lines on every roadway twice per week, this does not address the question raised by this thread.

The bill clearly states the intent and qualification process.  The specifications are for the state government to monetize assets...transportation safety and efficiency upgrades.  BTW did you know that Minnesota had a fatal bridge collapse? People died and studies showed that other bridges are unsafe.

So, you suggest that the people of Minnesota should wait while Washington decides how to pork barrel the funds for a deteriorating infrastructure?  We need to bring decision making back to the most local level as is possible.

If people are sincere in wanting to end the private Federal Reserve, then alternatives must be in place to prevent the Fed from shutting down our entire economy - extortion again, just like last year's bail-out.

Laying aside for the moment the fact that the MTA is merely a mechanism to create unrestrained inflation by spending an unlimited amount of money on transportation projects,

Your opinion is offered without any evidence.  How is it inflationary if newly created money is endowed with value backed by the materials, labor and productivity of transportation projects?  The difference between our current system and the MTA is that instead of monetizing debt we are monetizing wealth.

Under our current system of usury, the government borrows money from private banks.  BTW, the banks never had the money they lend, it is created for free.  And who backs up that money?  The government through bond collateral and private entities through assets - the banks add nothing beyond transaction costs.

Your inflation bugaboo is a straw man.

The MTA is a valiant effort to start monetary reform on a state basis.  I call you to the carpet...identify at least one better alternative. 

I thought this thread was about solutions and alternatives...and you attack the one group that has actually offered serious monetary reform legislation that is being considered by a State? 

Larry

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Thomas Hedin
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Re: What Would We Do Without Credit?

BTW did you know that Minnesota had a fatal bridge collapse?

Like most of the problems in America, people just don't seem to care until it hits home, then it's a problem for them, and when they want help, all they find is people with the exact same attitude that they had.

We can either start to address the problem of having 100% of our medium of exchange created as interest bearing loans or we sooner or later are going to face the consequences of catastrophic debt.  It's already later, and sooner is a lot closer than we think.

The bridge collapse is just a symptom of what is really wrong with America.  A money system that is designed at it's very core to bankrupt the nation, and it will take down the entire society with it as long as we continue to permit it to exsist.

 

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Re: What Would We Do Without Credit?
Thomas Hedin wrote:

The bridge collapse is just a symptom of what is really wrong with America.  A money system that is designed at it's very core to bankrupt the nation, and it will take down the entire society with it as long as we continue to permit it to exsist.

Actually, my take on this is that bridge collapses and other infrastructure problems are caused by out of control growth......  all the old "stuff" built by a mature civilisation eventually needs replacing, and this now is occuring whilst at the same time a lot more "new stuff" has to be built, simultaneously, to deal with the growth.....

This is what I believe has brought down every civilisation before this one, except that this time we are doing this on a global scale!

Mike

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Re: What Would We Do Without Credit?
Thomas Hedin wrote:

I doubt if one man in two million has any idea what the money supply is or whether it has increased or decreased, so why would people rise or lower there prices due to an increase or a decrease in the money supply when they didn’t even know that there had been one.

The only way an increase in the money supply would increase prices would be if almost every thing was bought and sold at auctions where the price is determined by the bidding process.  Personal observation and experience has shown me that ever few buyers offer to pay more than the seller’s asking price.

Hi Thomas,

I know from discussing this issue with you previously that you (and Byron Dale) believe that printing more money cannot cause inflation by itself.

With all respect for your opinion, I don't believe it is necessary to debate that point at this time.  Chris Martenson's Crash Course chapter on Inflation discusses the relationship between money supply and prices, relative to the total amount of goods and services existing in an economy.  I might also point out the well-known effect on prices in Europe in the 16th century when the product of the gold and silver mines of North America entered the European (and particularly the Spanish) economy.

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Re: What Would We Do Without Credit?

Hi Larry,

I too, will reply in parts.

DrKrbyLuv wrote:

The specifications are for the state government to monetize assets...transportation safety and efficiency upgrades.

  No, that is not quite true.  The use of the money has but one restriction: "funding of all state, county, statutory or home rule charter city, and town highways, streets, roads, bridges, transit systems, and other transportation infrastructure projects."

This could mean anything road, bridge, or tunnel-related.  Including building roads to nowhere, renumbering every exit on the I-35 every week, or repainting every bridge in the state just to create an excuse to print money and hand it out.  A road to nowhere is not an asset; a repainted bridge that did not need repainting is not an asset.  These are merely a waste of capital and labor.

DrKrbyLuv wrote:

BTW did you know that Minnesota had a fatal bridge collapse? People died and studies showed that other bridges are unsafe. So, you suggest that the people of Minnesota should wait while Washington decides how to pork barrel the funds for a deteriorating infrastructure?  We need to bring decision making back to the most local level as is possible.

I know people have died, but this is merely the equivalent of proclaiming, "There's a time to think, and a time to act!  And boys, this is no time to think!"  We all agree that action is needed, but calls for haste are no excuse to adopt what might be a bad plan.

DrKrbyLuv wrote:

How is it inflationary if newly created money is endowed with value backed by the materials, labor and productivity of transportation projects?  The difference between our current system and the MTA is that instead of monetizing debt we are monetizing wealth.

  If the transportation project has no value, then the finished product is not wealth - it is worthless.  A road to nowhere, commissioned at exhorbitant prices by the governor merely to create jobs for itinerant workers, using ten times the number of workers than was needed and paying them, say, $500 per hour (Why not? We can print the money!) is not an asset.  The finished product is worthless.  As worthless as if the materials and capital had been sunk to the bottom of the ocean.  A road leading to nowhere would have no value to anybody.

And there is nothing to prevent the governor from creating many such roads, just so he can have an excuse to print the money.

DrKrbyLuv wrote:

I call you to the carpet...identify at least one better alternative.

  My pleasure.  My preferred alternative was reviewed by the commentator Paul Grignon in his video "Money as Debt" at about time-point 36:00.  New interest-free money would be spent directly into the economy (preferably on infrastructure projects such as roads and bridges) and the rate of general inflation would be controlled by regulating the amount of such spending.  Furthermore, inflation would be acknowledged as equivalent to taxation and would be legislatively regulated as a form of taxation.  This plan is similar to the MTA in concept, but it has several key differences (such as regulation of the amount of money that is printed).  I invite your opinion.

(Text of the MTA:  https://www.revisor.mn.gov/bin/showPDF.php)

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Damnthematrix
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Re: What Would We Do Without Credit?

And of course all this road building ignores a very important point.......  we soon won't be driving ANYWHERE!

Mike

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Re: What Would We Do Without Credit?
Damnthematrix wrote:

And of course all this road building ignores a very important point.......  we soon won't be driving ANYWHERE!

Touché

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Thomas Hedin
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Re: What Would We Do Without Credit?

And of course all this road building ignores a very important point.......  we soon won't be driving ANYWHERE!

Mike

Why won't we be driving anywhere?

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Re: What Would We Do Without Credit?

2nd E Energy.

When we start to see a decline in oil production the price will skyrocket (to be honest if we saw a strong indication that oil reserves were over inflated, this would happen to), with as devalued a currency as the US dollar will be by that time, and the likelihood that income will not keep pace with the cost of living, then shortly thereafter gas will be cost prohibitive.

Yes E85 and bio-diesel might help if they didn't require the same fuels as they produce to grow, and process, by the time that TPTB take notice to try to correct the situation then it will be critical, and with virtually no hope of correction, unless you happen to be in the military, or similar.

So building a road right now with a potential lifespan of say 5-10 years is a bad investment YMMV

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